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How Does Bitcoin Work? What is Cryptocurrency?

We are going to talk about Bitcoin and other digital currencies, how they work, how you can buy them, pay others and get paid.

Bitcoin is a new currency that was created in 2009. Transactions are made with no middle men – meaning, no banks! There are no transaction fees and no need to give your real name. More merchants are beginning to accept them: You can buy pizza, Amazon gift cards, or even manicures.

So, how does it compare to cash? Keep in mind, your money at the bank does not consist of cash stuffed into cubby holes in a building down the street. When you look online at your bank account what you really see is digital dollars, euros, yen, pounds, francs, etc. backed up on computer servers around the globe.

How Does Bitcoin Work

Similarities to Cash

Now there are some differences. But for purposes of familiarity, and understanding the concept, right now we are focusing on how cash and cryptocurrency are similar.

We already use digital currency when we use our debit cards, when we send a bank wire, when we make an online payment using our account number.  Now, you can convert that digital currency in to paper money if you want to.

It is the same with Bitcoin. Just like you can convert Euros into dollars, you can convert bitcoin into actual dollars, euros, etc. by, for example, transferring the funds onto a debit card and buying things at the store and online if you wish. You can also take that debit card down to a cash machine or ATM and withdraw paper currency. Now, bitcoin is not the only digital currency.There is also Etherium, Litecoin and others. Let’s focus on Bitcoin for now, the most well know.

So, What Do You Do?

Number one: Use a smartphone and download an app that allows you to buy or get paid in bitcoin. The most popular app right now is COINBASE.

Number two: Follow the instructions on the app to link your bank account or debit card to the app. You link your bank account by typing your bank’s online user  username and password or by verifying small deposits that they will make over the next 1 to 3 days.

Number three: Buy Bitcoin

How do you get paid in Bitcoin? 

See the video for an example.

How do you pay or get paid in Bitcoin?

See the video for an example.

Why Bitcoins?

Bitcoins can be used to buy merchandise privately. In addition, international payments are easy and cheap because bitcoins are not tied to any country and you help eliminate the currency conversion fees. Small businesses may like them because there are no credit card fees. Some people just buy bitcoins as an investment, hoping that they’ll go up in value.

To increase that privacy further, you can tie your digital account to a company. That is what we do. We form domestic and offshore companies.


People can send bitcoins to each other using mobile apps or their computers. It’s similar to sending cash digitally.

Owning Bitcoins

Bitcoins are stored in a “digital wallet,” which exists either in the cloud – which is a series of servers around the world, or on your own. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money.


Can you be hacked? Very, very rarely, because the encryption used is extremely strong. That’s why they call it cryptocurrency. The only way I know is where someone has been careless with their password by emailing to someone or storing it on a computer that is hacked.

So, if you are careful with your password, it is far easier for someone to break into your house and steal your jewelry or pick pocket you on the street than it is to take your digital currency.

Though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs. While that keeps bitcoin users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them.

Don’t Criminals Use It?

Sure. Many criminals use cash, drive cars, and eat at restaurants. But should we should banish them just because bad guys do them too? We can simply use digital currency in legal ways, just like we use cash and debit cards.

What is its future?

No one knows what will become of bitcoin or other digital currencies. It is mostly unregulated, but that could change. Governments are concerned about taxation and their lack of control over the currency.

Is it a good investment? 

Now, we get to an opinion. So, I’ll give you one. Some people over the short term have seen increases in value as the currencies have become more popular. Some have seen decreases. Over the long term, however, I do not think it is any better investment that buying US dollars as an investment.

Keep in mind as a digital currency, it is still a currency. It is a means to buy goods and services, not an investment.

Profitable corporations create value. They provide goods and services for a profit. If you invest in their stock, you may participate in that profit. You can study the roots – such as Apple coming out with the hot new product and anticipate profit growth. You can see it’s cash reserves and debt and make a reasonable analysis of safety and future growth.

With digital currency, you simply have supply and demand and maybe a few other factors. You also have an unlimited number of new cryptocurrencies that the next guy may invent. So, in my view, you do not have the reliable roots to study as you would an intelligent investment such as corporate stock. So, no, I do not see bitcoin or other cryptocurrency as an investment over the long term. I would not leave large amounts of money in it.

As a business owner, as long as it is legal and easily convertible into cash, which it is, I want to leave the door wide open when it comes to giving customers options to pay me.

How much do I need to know before i use it? 

Do you understand every detail of how your television transmits signals to the sights and sounds you see on the screen? I don’t. Very few do. We just turn it on and use it without knowing these details. It is analogous to digital currency. You can dig up the roots and study every aspect if that’s’ your thing. But for most of us, we just need to know how to use it and how to keep it safe.

So, cryptocurrency here to stay? We will see. Meanwhile, I hope this guide has been useful if you would like to get started.